Wednesday, March 21, 2007

Market exchange is not based on the requirement that both parties appraise the goods about to be exchanged at equal value. Instead, market exchange is based on both parties benefiting from a two-way, unequal valuation of the goods to be exchanged.

An example from my youth: During my high school years in the early 1980's, I had purchased a double-live album of the rock group Rush for $15. Teenagers can be a fickle lot and I was no different. My musical tastes changed during my junior year and I morphed from a Rush fan into someone who felt that Fly By Night was simply noise — vulgar noise at that. Not only did I no longer listen to the album, I wanted to get rid of it since I felt that the album reduced the quality of my record collection.

Along comes a fellow student who was fast becoming an ardent Rush fan. We agreed to an exchange: I would trade my album for his $5. Fair enough. Right after the exchange, as I held the $5 and he held the album, the new Rush fan said something along the lines of, "I just ripped you off. I would have paid $10 for that album." I replied, "No, I just ripped you off since I was about to toss the album into the garbage anyway."